Abbott Laboratories is one of the oldest and most successful pharmaceutical companies in the United States. While about 30 percent of annual revenues come from the sale of pharmaceuticals—including Abbott’s flagship drug, the antibiotic Biaxin—the company has a higher profile in the area of nutritionals, where its products include leading infant formula brands Similac and Isomil and a leading adult nutritional brand, Ensure. Abbott is also a top manufacturer of medical diagnostic equipment, with an emphasis on blood analyzers and the detection and monitoring of infections and diseases. The firm’s hospital products unit produces electronic and injectable drug-delivery systems, intravenous solutions and supplies, anesthetics, and products used in critical care settings. Abbott’s annual research and development budget exceeds $1 billion, with areas of emphasis including AIDS/antivirals, anti-infectives, diabetes, neuroscience, oncology, pediatric pharmaceuticals, urology, and vascular medicine.

Early Decades

Abbott Laboratories has its origin in the late 19th century in a small pharmaceutical operation run from the kitchen of a Chicago physician named Wallace Calvin Abbott. As did other physicians of the time, Dr. Abbott commonly prescribed morphine, quinine, strychnine, and codeine—all of which were liquid alkaloid extracts—for his patients. Because they existed only in a liquid form, these drugs were prone to spoilage over time, mitigating their effectiveness as treatments. In 1888, Dr. Abbott heard that a Belgian surgeon had developed alkaloids in solid form. Alkaloid pills soon became available in Chicago, but Dr. Abbott was dissatisfied with their quality, and he decided to manufacture his own.

Dr. Abbott began to advertise his products to other doctors in 1891. So successful was his business that he eventually sold shares to other doctors and incorporated his operation in 1900 as the Abbott Alkaloidal Company. By 1905, annual sales had grown to $200,000. Ten years later, the company changed its name to Abbott Laboratories. During World War I, Abbott’s company was essential to the medical community, as several important drugs, manufactured exclusively by German companies, were no longer available in the United States. Abbott developed procaine, a substitute for the German novocaine, and barbital, a replacement for veneral.

After the war, Abbott continued to concentrate on the research and development of new drugs. In 1921, the company established a laboratory in Rocky Mount, North Carolina, which developed a number of new drugs, including sedatives, tranquilizers, and vitamins. Even after Dr. Abbott’s death that year, the company continued to invest heavily in new product development and aggressive marketing campaigns. The company went public in 1929 with a listing on the Chicago Stock Exchange. Two years later, Abbott expanded outside the United States for the first time with the establishment of an affiliate in Montreal, Canada.

DeWitt Clough was named president of the company in 1933, ending a period of somewhat stale communal leadership. A more dynamic character than any since Dr. Abbott, Clough is best remembered for the inauguration of the company magazine,
What’s New? The publication had such a positive impact on worker morale and public opinion that several of Abbott’s competitors started similar publications. In 1936 Abbott began its long-term association with anesthetics when it introduced sodium pentothal, which had been developed by Abbott scientists Ernest Volwiler and Donalee Tabern (who in 1986 were named to the U.S. Inventors Hall of Fame for this discovery).

During World War II, Abbott once again played an important role in battlefield and hospital healthcare. By this time, American pharmaceutical companies such as Abbott were much less dependent on Germany’s companies, particularly the IG Farben—a conglomeration of the world’s most advanced drug manufacturers. After the war, much of the IG Farben’s research was turned over to American manufacturers. Abbott, however, had little to gain from this information; it was already a worthy competitor on its own.

After the departure of DeWitt Clough in 1945, Abbott shifted its attention to the development of antibiotics. The company developed the antibiotic erythromycin, which, introduced under the brand names Erythrocin and E.E.S. in 1952, constituted a significant portion of Abbott’s prescription drug sales for several decades—even after the expiration of its 17-year patent. Sales of the drug increased dramatically when it was found to be an effective treatment for Legionnaire’s disease.

Abbott stumbled onto a lucrative new product when one of its researchers accidentally discovered that a chemical with which he had been working had a sweet taste. The chemical, a cyclamate, could be used as an artificial sweetener. Initially, from 1950, it was marketed to diabetics, but in the 1960s, as Americans became more health and diet conscious, it was increasingly used as a sugar substitute in a wide variety of foods.

In 1964 Abbott completed the first major acquisition in company history when it purchased Columbus, Ohio-based M&R Dietetic Laboratories. M&R was the manufacturer of Similac baby formula and over the succeeding decades, as the company’s Ross Products Division, formed the basis for Abbott’s market-leading infant and adult nutritionals business.

Late 1960s and Early 1970s: Diversification and Crises

By the mid-1960s, Abbott had gone several years without a major breakthrough in research, and none was projected at any time in the immediate future. Then, in 1967, Edward J. Ledder was named president of the company. He advocated a reduction in Abbott’s emphasis on pharmaceuticals by diversifying into other fields. In the years that followed, Abbott introduced an array of consumer products, including Pream nondairy creamer, Glad Hands rubber gloves, Faultless golf balls, and Sucaryl, the cyclamate sugar substitute. In an effort to ensure the success of Abbott’s consumer product line, Ledder placed Melvin Birnbaum, a highly experienced and able manager he had hired away from Revlon, in charge of the division. Ledder’s policy of diversification laid the groundwork for more flexible corporate strategies. No longer exposed exclusively within the pharmaceuticals market, Abbott was able to cross-subsidize failing operations until they could be rehabilitated.

Despite this flexibility, Abbott soon realized new obstacles to its growth. The company’s hospital products competed in a limited, institutional market. New drugs had greater profit margins but were subject to government approval procedures that kept companies waiting for several years before they could market their discoveries. Consumer products, on the other hand, involved more expensive marketing and generated less profit than pharmaceuticals. Unable to increase profits without substantial risk, Abbott’s management decided to maintain the strategies that were in place.

Cyclamate sales had grown so dramatically that by 1969 they accounted for one-third of Abbott’s consumer product revenues—or about $50 million. The increasing popularity of cyclamates as an ingredient in diet foods, however, led the Food and Drug Administration (FDA) to conduct an investigation of possible side effects from their overuse. The FDA’s research was widely criticized as “fragmentary” and “fatally flawed,” but it was nonetheless used as evidence that cyclamates were carcinogenic. The market collapsed in August 1970 when the FDA banned domestic sales of cyclamates. Abbott, which overnight had suffered the loss of one of its most profitable operations, protested the ban, but was unable to reverse the decision. Although the company continued to petition the FDA, subsequent studies confirmed that metabolization of cyclamates can lead to chromosome breakage and bladder cancer.

Less than a year after cyclamates were banned, Abbott was forced to recall 3.4 million bottles of intravenous solution. The bottles were sealed with a varnished paper called Gilsonite, which, it was discovered, harbored bacteria. The contamination was discovered only when healthcare workers noticed and then investigated the high incidence of infection in patients who had been administered Abbott’s intravenous solutions. The Center for Disease Control linked the contaminated solutions to at least 434 infections and 49 deaths. With sales down from $17.9 million to $3 million, Abbott’s share price began to fall. Abbott moved quickly to replace its Gilsonite seals with synthetic rubber, but the company was unable to regain its leadership of the intravenous market. Litigation resulted in the company eventually pleading no contest to a charge of conspiracy and paying a $1,000 fine.

Company Perspectives:

Abbott’s vision is to be the world’s premier health care company. Simply put, we want to be the best—the best employer, the best health care supplier, the best business partner, the best investment and the best neighbor.

While Abbott is broadly diversified, all of its thousands of products and people are dedicated to a common mission: to improve lives by providing cost-effective health care products and services.

The crises of the early 1970s left the company’s upper echelon of management weakened and vulnerable to criticism. Although Edward Ledder was recognized for the success of his diversification
program (and largely excused for his inability to prevent either the cyclamate ban or the intravenous solution crisis), conditions were obviously ripe for the expression of talent by a new manager. Robert Schoellhorn, a veteran of the chemical industry, was just such a manager. His efforts as a vice-president in the hospital products division at Abbott resulted in a revenue increase of 139 percent for that division between 1974 and 1979. He correctly predicted that the next most profitable trend in healthcare would be toward cost-effective analysis and treatment. Schoellhorn was later promoted to president and chief operating officer of the company. Meantime, in 1977 Abbott entered into a joint venture with Takeda Chemical Industries, Ltd. of Japan called TAP Pharmaceuticals Inc. for the codevelopment and comarketing of pharmaceuticals.

Abbott Laboratories registered an annual sales growth rate of 15.5 percent and an earnings growth rate of 16.5 percent by 1979. This expansion was attributed by financial analysts to the company’s increased productivity, reduced costs, expansion into foreign markets, and greater involvement in hospital nutritionals and diagnostic testing equipment. The company also introduced three new drugs in 1979: Depakene, an anticonvulsant; Tranxene, a mild tranquilizer; and Abbokinase, a treatment for blood clots in the lungs. All three products were the direct result of the company’s increased investment in research and development in the mid-1970s.

Utilizing its knowledge of intravenous solution production, vitamin therapy, and infant formula, Abbott developed a comprehensive nutritional therapy program to speed the recovery of hospital patients and thereby reduce medical care costs. In the 1980s, as many as 65 percent of all hospital patients suffered from some form of malnutrition, so Abbott was highly successful in marketing their program. Another advantage of adult nutritional products was that they had a place in the growing home care market.

Abbott had similar success marketing its lines of diagnostic equipment. Electronic testing devices developed by Abbott proved more accurate than manual procedures. In order to strengthen the technical end of its diagnostic equipment research, Abbott hired two top executives away from Texas Instruments to head the division.

Robert Schoellhorn, who advanced to chairperson and chief executive officer in 1979, continued to emphasize investment in pharmaceutical research and development in the 1980s. Seven new drugs introduced in 1982 accounted for 17 percent of sales in 1985. Foreign operations also remained extremely important to Abbott, and the company had more than 75 foreign subsidiaries and manufacturing facilities in more than 30 countries. Schoellhorn continued to support Ledder’s original diversification policy. The introduction of Murine eye-care products and Selsun Blue dandruff shampoo served to expand the domestic consumer product line and promised to provide earning stability in the event of a downturn in any of the company’s other markets.

Schoellhorn was also credited with promoting Abbott’s emphasis on diagnostic equipment, especially blood analyzers. These devices were increasingly used to detect legal and illegal substances in the bloodstream. Abbott led the trend, developing the first diagnostic tests for Acquired Immune Deficiency Syndrome (AIDS), in 1985, and hepatitis. The company’s “Vision” blood analyzer fit on a desktop and performed 90 percent of typical blood tests within eight minutes. By the end of the 1980s, sales of blood analysis devices represented a billion-dollar business, and medical diagnostic products (at $2.3 billion per year) constituted nearly half of Abbott’s annual sales. Meanwhile, in the pharmaceuticals arena, Abbott in 1987 received FDA approval for a new drug called Hytrin for the treatment of hypertension. Hytrin was approved in 1993 for the treatment of noncancerous enlarged prostate.

Abbott agrees to acquire ALZA Corporation for $7.3 billion but the deal later collapses; Abbott agrees to pay a $100 million fine relating to quality control problems at its medical test kit plants; suture maker Perclose, Inc. is acquired.

Schoellhorn was widely praised as the driving force behind Abbott’s phenomenal growth during the 1980s—sales nearly tripled, profits doubled, and the pharmaceutical company rose to 90th from 197th on Fortune’s list of the world’s top 500 companies. The leader’s aggressive management style, however, often led to conflict. Over the course of the 1980s, three presidents—James L. Vincent (1981); Kirk Raab (1985); and Jack W. Schuler (1989)—quit. In December 1989, Abbott’s board of directors unseated Schoellhorn, who in turn sued the company for his job. Abbott accused Schoellhorn of misappropriation
of company assets and “fraudulent conduct,” adding that the former CEO exercised stock options worth $9.3 million within days of his release. Schoellhorn was succeeded by Vice-Chairman Duane L. Burnham.

1990s and Beyond: New Drug Introductions and Acquisitions

Unlike many of its competitors (including Merck, SmithKline Beecham, and Eli Lilly), Abbott did not acquire a drug distribution manager in the early 1990s. Instead, the company plowed funds into research and development. R&D outlays rose from 5.2 percent of sales in 1982 to more than 10 percent of sales by 1994—by the latter year, R&D expenditures neared $1 billion. That year marked the company’s 23rd consecutive earnings lift and helped Abbott’s stock hold its value better than most competitors in the uncertain healthcare environment of the early 1990s.

Among key developments in the early 1990s was the introduction in 1991 of clorithromycin, an antibiotic developed as a successor to Abbott’s erythromycin. Marketed in the United States under the name Biaxin, clorithromycin was useful in the treatment of common upper respiratory ailments such as the flu as well as other types of infections. It quickly became Abbott’s flagship pharmaceutical—eventually achieving $1 billion in annual sales—remaining so into the early 21st century.

New product introductions continued in the middle years of the decade. In 1994 Abbott introduced sevoflurane, an inhalation anesthetic that soon gained popularity because of its wide range of uses. The following year, TAP, the joint venture with Takeda Chemical, received FDA approval for Prevacid, an ulcer treatment (sales of Prevacid reached $1.3 billion by 1998). In 1996 FDA clearance was granted for Norvir, a protease inhibitor for the treatment of HIV and AIDS.

Despite these R&D successes, Abbott’s earnings were failing to increase at the high-double-digit rate that they had in the 1980s, and the company was beginning to face the risk of being gobbled up by a larger rival in the rapidly consolidating healthcare industry of the 1990s. Shrugging off the conservative management of the early 1990s, Abbott moved aggressively in the second half of the decade to expand via acquisition and thereby stave off being acquired itself. In 1996 Abbott bolstered its diagnostics division through the $867 million purchase of MediSense, Inc., a Waltham, Massachusetts-based maker of blood-testing devices for diabetics. This was the company’s first major deal since the 1964 acquisition of M&R Dietetic Laboratories. In 1997 Abbott spent about $200 million for certain intravenous product lines of Sanofi Pharmaceuticals, Inc., the U.S. unit of France’s Sanofi S.A. Included in this deal was Carpujet, an injectable drug-delivery system based on preloaded, single-dose syringes. Also in 1997, Abbott suffered a potential setback when Takeda Chemical did not renew a ten-year contract that gave Abbott the right of first refusal to distribute Takeda’s new drugs in the United States via the TAP venture. Takeda had decided to set up its own sales and marketing organization in the United States. By this time TAP was generating annual sales in excess of $2 billion, primarily from the marketing of Prevacid and Lupron, a prostate-cancer drug.

By 1997 Abbott had doubled its sales and earnings since Burnham had taken over from the ousted Schoellhorn. In early 1998 Burnham announced that he would retire in 1999. At the beginning of that year, Miles D. White, who had been a senior vice-president in charge of the diagnostics division, took over as CEO. Later in 1999, White was named chairman as well. During the leadership transition period in 1998, Abbott acquired Murex Technologies Corporation, a maker of diagnostics products, for $234 million. During 1999, Abbott’s appetite for growth increased exponentially with the announcement in June of a deal to acquire ALZA Corporation for $7.3 billion in stock. ALZA was a leading producer of advanced drug-delivery systems and had a solid pipeline of new pharmaceuticals under development. The Federal Trade Commission (FTC), however, raised antitrust concerns about the merger, and when the two sides were unable to reach an agreement with the FTC, they called off the merger in December. Another possible factor in the collapse of the deal was the decline in Abbott’s stock price following the company’s agreement in November to pull 125 types of medical-diagnostic test kits off the U.S. market and to pay a $100 million civil penalty to the U.S. government. Since 1993 the FDA had been issuing warnings to Abbott regarding quality control deficiencies at its test kit plants, with the market withdrawal and payment of the fine being the outcome of this process. The FDA also cited poor manufacturing controls as the reason for its halting the sales of Abbott’s clot-dissolving agent Abbokinase in early 1999.

In the meantime, Abbott managed to complete two smaller acquisitions in 1999. It acquired Perclose, Inc., a maker of sutures used to close arteries during angioplasty procedures, for about $600 million in stock. Abbott also paid $217 million in cash to Glaxo Wellcome Inc. for five anesthesia products. In January 2000 Abbott sold its agricultural products business to Sumitomo Chemical Co., Ltd. Abbott was now for the first time in decades a pure healthcare firm. Abbott in April of that year began marketing Biaxin XL, a new once-daily formulation of its flagship Biaxin antibiotic. The FDA in September 2000 granted expedited approval to Kaletra, a second-generation AIDS medication developed by Abbott. Kaletra had the potential to overtake the top AIDS drug, Pfizer Inc.’s Viracept, because it had fewer side effects. It also appeared that patients did not develop resistance to Kaletra over time, as happened with most other AIDS drugs, including Viracept. Then in December 2000 Abbott launched another attempt at a major acquisition when it reached an agreement to acquire the Knoll Pharmaceutical Co. unit of German chemical giant BASF AG for $6.9 billion in cash. Once again, Abbott’s aim was to bolster its product pipeline, and Knoll had at least one potential blockbuster in a drug called D2E7, an experimental rheumatoid arthritis treatment. Knoll’s existing products included Meridia, an obesity drug with annual sales of about $400 million, and Synthroid, a $150 million thyroid drug. The acquisition would also boost Abbott’s pharmaceutical R&D budget to nearly $1 billion.

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Abbott Laboratories is one of the oldest and most successful of America’s pharmaceutical companies. While ethical drugs only accounted for one-fourth of its annual sales in the early 1990s, Abbott ranked as a top manufacturer of medical diagnostic equipment, with an emphasis on blood analyzers, and was also a leading producer of infant formulas under the Similac and Isomil brands, which commanded over half of the $3 billion American market. Abbott’s consumer brands also included Clear Eyes and Murine eye care products; Selsun Blue shampoo; and Ensure nutritional supplement. Moreover, the company held the patent on the “truth serum” sodium pentothal and continued to lead sales of the antibiotic erythromycin, which it introduced in 1952.

Abbott Laboratories has its origin in the late nineteenth century in a small pharmaceutical operation run from the kitchen of a Chicago physician named Wallace Calvin Abbott. As did other physicians of the time, Dr. Abbott commonly prescribed morphine, quinine, strychnine, and codeine—all of which were liquid alkaloid extracts—for his patients. Because they existed only in a liquid form, these drugs were prone to spoilage over time, mitigating their effectiveness as treatments. In 1888, Dr. Abbott heard that a Belgian surgeon had developed alkaloids in solid form. Alkaloid pills soon became available in Chicago, but Dr. Abbott was dissatisfied with their quality, and he decided to manufacture his own.

Dr. Abbott began to advertise his products to other doctors in 1891. So successful was his business that he eventually sold shares to other doctors and incorporated his operation in 1900 as the Abbott Alkaloidal Company. By 1905, annual sales had grown to $200,000. During World War I, Abbott’s company was essential to the medical community, as several important drugs, manufactured exclusively by German companies, were no longer available in the United States. Abbott developed procaine, a substitute for the German novocaine, and barbital, a replacement for veneral.

After the war, Abbott continued to concentrate on the research and development of new drugs. In 1921, the company established a laboratory in Rocky Mount, North Carolina, which developed a number of new drugs, including sedatives, tranquilizers, and vitamins. Even after Dr. Abbott’s death that year, the company continued to invest heavily in new product development and aggressive marketing campaigns.

DeWitt Clough was named president of the company in 1933, ending a period of somewhat stale communal leadership. A more dynamic character than any since Dr. Abbott, Clough is best remembered for the inauguration of the company magazine, What’s New?. The publication had such a positive impact on worker morale and public opinion that several of Abbott’s competitors started similar publications.

During World War II, Abbott once again played an important role in battlefield and hospital health care. By this time, American pharmaceutical companies such as Abbott were much less dependent on Germany’s companies, particularly the IG Farben—a conglomeration of the world’s most advanced drug manufacturers. After the war, much of the IG Farben’s research was turned over to American manufacturers. Abbott, however, had little to gain from this information; it was already a worthy competitor on its own.

After the departure of DeWitt Clough in 1945, Abbott shifted its attention to the development of antibiotics. The company developed erythromycin, which, under the brand names Erythrocin and E.E.S., constituted a significant portion of Abbott’s prescription drug sales for several decades—even after the expiration of its 17-year patent. Sales of the drug increased dramatically when it was found to be an effective treatment for Legionnaire’s disease.

Abbott stumbled onto a lucrative new product when one of its researchers accidentally discovered that a chemical with which he had been working had a sweet taste. The chemical, a cyclamate, could be used as an artificial sweetener. Initially, from 1950, it was marketed to diabetics, but in the 1960s, as Americans became more health and diet conscious, it was increasingly used as a sugar substitute in a wide variety of foods.

By the mid-1960s, Abbott had gone several years without a major breakthrough in research, and none was projected at any time in the immediate future. Then, in 1967, Edward J. Ledder was named president of the company. He advocated a reduction in Abbott’s emphasis on pharmaceuticals by diversifying into other fields. In the years that followed, Abbott introduced an
array of consumer products, including Pream non-dairy creamer, Glad Hands rubber gloves, Faultless golf balls, and Sucaryl, the cyclamate sugar substitute. In an effort to ensure the success of Abbott’s consumer product line, Ledder placed Melvin Birnbaum, a highly experienced and able manager he had hired away from Revlon, in charge of the division. Ledder’s policy of diversification laid the groundwork for more flexible corporate strategies. No longer exposed exclusively within the pharmaceuticals market, Abbott was able to cross-subsidize failing operations until they could be rehabilitated.

Despite this flexibility, Abbott soon realized new obstacles to its growth. The company’s hospital products competed in a limited, institutional market. New drugs had greater profit margins but were subject to government approval procedures that kept companies waiting for several years before they could market their discoveries. Consumer products, on the other hand, involved more expensive marketing and generated less profit than Pharmaceuticals. Unable to increase profits without substantial risk, Abbott’s management decided to maintain the strategies that were in place.

Cyclamate sales had grown so dramatically that by 1969 they accounted for one-third of Abbott’s consumer product revenues—or about $50 million. The increasing popularity of cyclamates as an ingredient in diet foods, however, led the FDA to conduct an investigation of possible side effects from their overuse. The FDA’s research was widely criticized as “fragmentary” and “fatally flawed,” but it was nonetheless used as evidence that cyclamates were carcinogenic. The market collapsed in August 1970 when the FDA banned domestic sales of cyclamates. Abbott, which overnight had suffered the loss of one of its most profitable operations, protested the ban, but was unable to reverse the decision. Although the company continued to petition the FDA, subsequent studies have confirmed that metabolization of cyclamates can lead to chromosome breakage and bladder cancer.

Less than a year after cyclamates were banned, Abbott was forced to recall 3.4 million bottles of intravenous solution. The bottles were sealed with a varnished paper called Gilsonite, which, it was discovered, harbored bacteria. The contamination was discovered only when health care workers noticed and then investigated the high incidence of infection in patients who had been administered Abbott’s intravenous solutions. The Center for Disease Control linked the contaminated solutions to at least 434 infections and 49 deaths. With sales down from $17.9 million to $3 million, Abbott’s share price began to fall. Abbott moved quickly to replace its Gilsonite seals with synthetic rubber, but the company was unable to regain its leadership of the intravenous market. Litigation resulted in the company eventually pleading no contest to a charge of conspiracy and paying a $1,000 fine.

The crises of the early 1970s left the company’s upper echelon of management weakened and vulnerable to criticism. Although Edward Ledder was recognized for the success of his diversification program (and largely excused for his inability to prevent either the cyclamate ban or the intravenous solution crisis), conditions were obviously ripe for the expression of talent by a new manager. Robert Schoellhorn, a veteran of the chemical industry, was just such a manager. His efforts as a vice-president in the hospital products division at Abbott resulted in a revenue increase of 139 percent for that division between 1974 and 1979. He correctly predicted that the next most profitable trend in health care would be toward cost-effective analysis and treatment. Schoellhorn was later promoted to president and chief operating officer of the company.

Abbott Laboratories registered an annual sales growth rate of 15.5 percent and an earnings growth rate of 16.5 percent by 1979. This expansion was attributed by financial analysts to the company’s increased productivity, reduced costs, expansion into foreign markets, and greater involvement in hospital nutritionals and diagnostic testing equipment. The company also introduced three new drugs in 1979: Depakene, an anticonvul-sant, Tranxene, a mild tranquilizer, and Abbokinase, a treatment for blood clots in the lungs. All three products were the direct result of the company’s increased investment in research and development in the mid-1970s.

Utilizing its knowledge of intravenous solution production, vitamin therapy, and infant formula, Abbott developed a comprehensive nutritional therapy program to speed the recovery of hospital patients and thereby reduce medical care costs. In the 1980s, as many as 65 percent of all hospital patients suffered from some form of malnutrition, so Abbott was highly successful in marketing their program. Another advantage of adult nutritional products was that they had a place in the growing home care market.

Abbott had similar success marketing its lines of diagnostic equipment. Electronic testing devices developed by Abbott proved more accurate than manual procedures. In order to strengthen the technical end of its diagnostic equipment research, Abbott hired two top executives away from Texas Instruments to head the division.

Robert Schoellhorn, who advanced to chairperson and chief executive officer in 1979, continued to emphasize investment in pharmaceutical research and development in the 1980s. Seven new drugs introduced in 1982 accounted for 17 percent of sales in 1985. Foreign operations also remained extremely important to Abbott, and the company had over 75 foreign subsidiaries and manufacturing facilities in more than 30 countries. Schoellhorn continued to support Ledder’s original diversification policy. The introduction of Murine eye-care products and Selsun Blue dandruff shampoo served to expand the domestic consumer product line and promised to provide earning stability in the event of a downturn in any of the company’s other markets.

Schoellhorn was also credited with promoting Abbott’s emphasis on diagnostic equipment, especially blood analyzers. These devices were increasingly used to detect legal and illegal substances in the bloodstream. Abbott led the trend, developing the first diagnostic tests for Acquired Immune Deficiency Syndrome (AIDS) and hepatitis. The company’s “Vision” blood analyzer fit on a desktop and performed 90 percent of typical blood tests within eight minutes. By the end of the 1980s, sales of blood analysis devices were a billion dollar business, and medical diagnostic products (at $2.3 million per year) constituted nearly half of Abbott’s annual sales.

Schoellhorn was widely praised as the driving force behind Abbott’s phenomenal growth during the 1980s—sales nearly
tripled, profits doubled, and the pharmaceutical company rose to 90th from 197th on Fortune’s list of the world’s top 500 companies. The leader’s aggressive management style, however, often led to conflict. Over the course of the 1980s, three presidents—James L. Vincent (1981); Kirk Raab (1985); and Jack W. Schuler (1989)—quit. In December 1989, Abbott’s board of directors unseated Schoellhorn, who in turn sued the company for his job. Abbott accused Schoellhorn of misappropriation of company assets and “fraudulent conduct,” adding that the former CEO exercised stock options worth $9.3 million within days of his release. Schoellhorn was succeeded by vice-chairperson Duane L. Burnham.

Unlike many of its competitors (including Merck & Co., Smith-Kline Beecham plc, and Eli Lilly & Co.), Abbott had not acquired a drug distribution manager in the early 1990s. Instead, the company plowed funds into research and development. R & D outlays rose from 5.2 percent of sales in 1982 to over ten percent of sales by 1994. That year marked the company’s 23rd consecutive earnings lift and helped Abbott’s stock hold its value better than most competitors in the uncertain health care environment of the early 1990s.

Citation styles

Encyclopedia.com gives you the ability to cite reference entries and articles according to common styles from the Modern Language Association (MLA), The Chicago Manual of Style, and the American Psychological Association (APA).

Within the “Cite this article” tool, pick a style to see how all available information looks when formatted according to that style. Then, copy and paste the text into your bibliography or works cited list.

Because each style has its own formatting nuances that evolve over time and not all information is available for every reference entry or article, Encyclopedia.com cannot guarantee each citation it generates. Therefore, it’s best to use Encyclopedia.com citations as a starting point before checking the style against your school or publication’s requirements and the most-recent information available at these sites:

Modern Language Association

The Chicago Manual of Style

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Notes:

Most online reference entries and articles do not have page numbers. Therefore, that information is unavailable for most Encyclopedia.com content. However, the date of retrieval is often important. Refer to each style’s convention regarding the best way to format page numbers and retrieval dates.

In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.

Abbott Laboratories is one of the oldest and most successful of America’s pharmaceutical companies. The man most responsible for the company’s current impressive performance in the market place is Robert A. Schoellhorn. When Schoellhorn joined Abbott in 1973 (after 27 years with American Cyanamid), he found the company in an unprecedented state of disarray. Three years earlier the Food and Drug Administration had banned production of cyclamates, an artificial sweetener of which Abbott was a major producer; the FDA had also ordered the company to recall 3.4 million bottles of a contaminated intravenous solution. Though only a divisional vice-president at the time, Schoellhorn would later prove crucial to Abbott’s impressive comeback. Today Abbott’s prospects have never looked so good—it is one of the few drug manufacturers recommended as an investment by Wall Street brokers.

Abbott Laboratories has its origin in the late 19th century in a small pharmaceutical operation run from the kitchen of a Chicago physician named Wallace Calvin Abbott. As did other physicians of the time, Dr. Abbott commonly prescribed morphine, quinine, strychnine and codeine —all of which were liquid alkaloid extracts—for his patients. Because they existed only in a liquid form, these drugs were prone to spoilage over time, mitigating their effectiveness as treatments. In 1888 Dr. Abbott heard that a Belgian surgeon had developed alkaloids in solid form. Alkaloid pills soon became available in Chicago, but Dr. Abbott was dissatisfied with their quality, and he decided to manufacture his own.

Dr. Abbott began to advertise his products to other doctors in 1891. So successful was his business that he eventually sold shares to other doctors and incorporated his operation in 1900 as the Abbott Alkaloidal Company. By 1905 annual sales had grown to $200,000.

During World War I Abbott’s company was essential to the medical community: several important drugs, manufactured exclusively by German companies, were no longer available in the United States. Abbott developed procaine, a substitute for the German novacaine, and barbital, a replacement for veneral.

After the war, Abbott continued to concentrate on the research and development of new drugs. In 1921 the company established a laboratory at Rocky Mount, North Carolina which developed a number of new drugs, including sedatives, tranquilizers, and vitamins. Despite Dr. Abbott’s death that year, the company continued to invest heavily in new product development and aggressive marketing campaigns.

DeWitt Clough was named president of the company in 1933, ending a period of somewhat stale communal leadership. A more dynamic character than any since Dr. Abbott, Clough is best remembered for the inauguration of the company magazine, What’s New? The publication had such a positive impact on worker morale and public opinion that several of Abbott’s competitors started similar publications.

During World War II Abbott once again played an important role in battlefield and hospital health care. By this time American pharmaceutical companies such as Abbott were much less dependent on Germany companies, particularly the IG Farben—a conglomeration of the world’s most advanced drug manufacturers. After the war much of the IG Farben’s research was turned over to American manufacturers. Abbott, however, had little to gain from this information; it was already a worthy competitor on its own.

After the departure of DeWitt Clough in 1945, Abbott shifted its attention to the development of antibiotics. The company developed erythromycin, which, under the brand names Erythrocin and E.E.S., constituted a significant portion of Abbott’s prescription drug sales for several decades—even after the expiration of its 17-year patent. Sales of the drug increased dramatically when it was found to be an effective treatment for Legionnaire’s Disease.

Abbott stumbled onto a lucrative new product when one of its researchers accidentally discovered that a chemical with which he had been working had a sweet taste. The chemical, a cyclamate, could be used as an artificial sweetener. Initially, from 1950, it was marketed to diabetics, but in the 1960’s, as Americans became more health and diet conscious, it was increasingly used as a sugar substitute in a wide variety of foods.

By 1965 Abbott had gone several years without a major breakthrough in research and, worse yet, none was projected at any time in the immediate future. Two years later Edward J. Ledder was named president of the company. He advocated a reduction in Abbott’s emphasis on Pharmaceuticals by diversifying into other fields. In the years that followed, Abbott introduced an array of consumer products, including Pream non-dairy creamer, Glad Hands rubber gloves, Faultless golf balls, and Sucaryl, a cyclamate sugar substitute. In an effort to insure the success of Abbott’s consumer product line, Ledder placed
Melvin Birnbaum, a highly experienced and able manager he had hired away from Revlon, in charge of the division.

Ledder’s policy of diversification laid the groundwork for more flexible corporate strategies. No longer exposed exclusively within the pharmaceuticals market, Abbott was able to cross-subsidize failing operations until they could be rehabilitated. Despite this flexibility, Abbott soon realized new obstacles to its growth.

The company’s hospital products competed in a limited, institutional market. New drugs had greater profit margins, but were subject to government approval procedures that kept companies waiting for several years before they could market their discoveries. Consumer products, on the other hand, involved more expensive marketing and generated less profit than pharmaceuticals. Unable to increase profits without substantial risk, Abbott’s management decided to maintain the strategies that were in place.

Cyclamate sales had grown so dramatically that by 1969 they accounted for one-third of Abbott’s consumer product revenues—or about $50 million. The increasing popularity of cyclamates as an ingredient in diet foods, however, led the FDA to conduct an investigation of possible side-effects from their overuse. The FDA’s research was widely criticized as “fragmentary” and “fatally flawed,” but it was nonetheless used as evidence that cyclamates were carcinogenic. The market collapsed in August 1970 when the FDA banned domestic sales of cyclamates. Abbott, which overnight had suffered the loss of one of its most profitable operations, protested the ban, but was unable to reverse the decision. Although the company has continued to petition the FDA, subsequent studies have confirmed that metabolization of cyclamates can lead to chromosome breakage and bladder cancer.

Less than a year after cyclamates were banned, Abbott was forced to recall 3.4 million bottles of intravenous solution. The bottles were sealed with a varnished paper called Gilsonite, which, it was discovered, harbored bacteria. The contamination was discovered only when health care workers noticed and then investigated the high incidence of infection in patients who had been administered Abbott’s intravenous solutions. The Center for Disease Control linked the contaminated solutions to at least 434 infections and 49 deaths. With litigation imminent and sales down from $17.9 million to $3 million, Abbott’s share price began to fall. Abbott moved quickly to replace its Gilsonite seals with synthetic rubber, but then the company faced the larger problem of regaining market share.

The crises of the early 1970’s left the company’s upper echelon of management weakened and vulnerable to criticism. Although Edward Ledder was recognized for the success of his diversification program (and largely excused for his inability to prevent either the cyclamate ban or the intravenous solution crisis), conditions were obviously ripe for the expression of talent by a new manager. Robert Schoellhorn, a veteran of the chemical industry, was just such a manager. His efforts as a vice-president in the hospital products division at Abbott resulted in a revenue increase of 139% for that division between 1974 and 1979. He correctly predicted that the next most profitable trend in health care would be toward cost-effective analysis and treatment. Schoellhorn was later promoted to president and chief operating office of the company.

Abbott Laboratories registered an annual sales growth rate of 15.5% and an earnings growth rate of 16.5% by 1979. This expansion was attributed by financial analysts to the company’s increased productivity, reduced costs, expansion into foreign markets, and greater involvement in hospital nutritionals and diagnostic testing equipment. The company also introduced three new drugs in 1979 — Depakene, an anticonvulsant, Tranxene, a mild tranquilizer, and Abbokinase, a treatment for blood clots in the lungs. All three products were the direct result of the company’s increased investment in research and development in the mid-1970’s.

Utilizing its knowledge of intravenous solution production, vitamin therapy, and infant formula (Abbott holds one-half of the market for infant formula with Simulac), Abbott developed a comprehensive nutritional therapy program to speed the recovery of hospital patients and thereby reduce medical care costs. As many as 65% of all hospital patients suffer from some form of malnutrition, and Abbott has been highly successful in marketing their program. Another advantage of adult nutritional products is that they have a place in the growing home care market.

Abbott has had similar success marketing its lines of diagnostic equipment. Electronic testing devices developed by Abbott are more accurate than manual procedures. In order to strengthen the technical end of its diagnostic equipment research, Abbott hired two top executives away from Texas Instruments to head the division. Some of the products currently under development by Abbott include a device that can detect cancer from a blood test as well as fibers to be used to transmit surgical laser beams.

Robert Schoellhorn, now chairman and chief executive officer, has continued to emphasize investment in pharmaceutical research and development—seven new drugs introduced in 1982 accounted for 17% of sales in 1985. Foreign operations also remain extremely important to Abbott (the company has 77 foreign subsidiaries and manufacturing facilities in 28 countries). Schoellhorn continues to support Ledder’s original diversification policy. The introduction of Murine eye-care products and Selsan Blue dandruff shampoo has served to expand the domestic consumer product line and promises to provide earning stability in the event of a downturn in any of the company’s other markets.

While other hospital product companies struggle to compete in the new cost-conscious market, Abbott Laboratories has successfully engineered the smooth transition into the 1980’s and looks superbly positioned to continue to grow in the 1990’s.

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